Beware of Low-Hanging Fruit in Your Client Base

As the calendar turns to a new year, accounting firms gear up for tax time. However, there's more to evaluate than clients' income taxes in the month of January. It's also the time of year when firms finalize their annual budgets. In doing so, you should analyze your client base for any shortcomings so you become aware of too much low-hanging fruit.

According to Accounting Today, CEO Dom Esposito believes that many accounting firms miss a golden opportunity as they scrutinize their client base at the start of each year. He states that low-hanging fruit, or clients who drag down a firm's profits or intellectual capital, may negatively affect the entire staff, from partners down to new hires. These clients take lot of time to nurture, and there isn't much return on the investment.

Types of Low-Hanging Morsels

Esposito points out that this part of your client base might include nonprofits, condo associations, employee benefit plan administrators, Sarbanes-Oxley compliance workers and companies that acquire of small practices. Nonprofits and condo associations often see low profit margins, which translates into lower profits for your company. Meanwhile, clients who administer employee benefit plans must be well-versed in regulations from the U.S. Department of Labor in addition to a client's finances. Sarbanes-Oxley compliance work bears low margins, and the need to comply with the Sarbanes-Oxley may go away entirely under the Trump administration.

When your client base and staff expands through small practice acquisition, you probably lose money with that investment because the staffers rarely stay with your firm more than couple of years. Yet, you still acquire the small clients from that acquisition. All of these issues add up to extra work that reaps little or no rewards.

Negative Impacts

If your accountants begin to feel as if they're not challenged or rewarded enough, their negativity might impact your entire company. Add to this the long work hours, and some CPAs might leave your firm for positions that nurture their analytical minds and reward them financially. This affects mid-market accounting firms the most because they don't have a ton of staff, but they must remain competitive in their markets. There's also a negative perception that partners take on this low end of the client base just to keep staff members busy. This busy work may discourage younger, newer staff members who jump into the accounting business to take on new challenges.

When you go over your annual budget, draw up a list of questions for a new client appraisal tool. Does the client allow your firm to build new skills and service areas? Does the client allow you to train younger staff? Does the company add to your marquee list of customers and build your industry credentials? Rather than see new clients as a necessary evil, partners should view them as a valuable asset to the firm.

An annual appraisal of your client base should note if clients risk short-term profits and partner compensation. After the appraisal, turn your focus to retaining your all-star clients and adding value to the services you provide them.

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